I am a day trader. How, exactly, do I report my investment income ($50,000 in losses, actually) into TurboTax, so that I can capitalize on the full range of deductions?

[Mark743]

I have used TurboTax for at least 10-20 years and it has been great. But now that I am a day trader who has suffered significant losses day trading, TurboTax seems to be failing me. Usually I just answer its questions and TurboTax leads me to the right answers, but not, apparently, when it comes to day trading. I need to know how, exactly, to enter my investment income into TurboTax so that it gets included as a business expense and is fully deductible.

I read elsewhere, in a separate TurboTax Forum, that I should report my trading gains and losses on Schedule D, just as I would if I were filing as an investor. My losses from the Schedule D then should be included on my Schedule C before transferring over to Line 12 of Form 1040. But what is not clear to me is whether Turbo Tax will make all of these connections. I am concerned that it will not. I am not used to doing things manually on TurboTax. Instead, I am used to simply answering its questions and being led to the right answers. Will that happen here? Or do I have to do things manually?

Also, as mentioned, I lost about $50,000 last year day trading, and my tax liability from other (non-day-trading) income is far less than $50,000. So does any of this $50,000 that I can't deduct in 2014 carry over to future years? And will TurboTax ensure that it carries over? Or do I have to do things manually because my situation is unusual or uncommon?

[johnnyacre]

Mark, you sound like you're in way over your head.  $50,000 in losses in a single year is a lot for anyone, especially an individual trading what I assume is your own capital.  Frankly, trading your own money without doing much research into what your capital gains/losses would end up costing you come tax time was a terrible idea.  I'd recommend you do some paper trading for about a year and read some serious books on price action.  I'll never understand why prospective traders start out by using their own money, which should not even be attempted until you can complete a minimum of 100 trades with paper money and have the dollar value of your profits outweigh the dollar value of your losses 60-40 at the conclusion of those trades.  What are you even doing trading, man? Get a real education on trading, and get a real accountant, until then stop trading real money.  At your pace, you may as well use $100 bills as kindleing for your weekend babeques.

[fanfare]

you, and I , are commenting on a two year old post. Oops.

[ptkershaw]

$50,000 may be a lot to Johnny Acre, but not to Mark (or to me.)  It might just be a part of the learning process and that might be a very small portion of his risk capital.  In consultancy costs (to a company like MTI or OTA), office buildout, high speed internet and computer equipment your startup expenses could easily top $50,000 before you place your first live trade.

[-taxpro1]

spouses with different residence state

[bwa · Accepted solution]

My losses from the Schedule D then should be included on my Schedule C before transferring over to Line 12 of Form 1040.

That's not correct.  You're confusing day trading with a Mark to Market election.  With day trading your gains and losses still go on Schedule D but your business expenses such as margin interest, computer costs allocatable to the business, etc. go on Schedule C.  In effect your losses will be on Schedule D (limited to $3,000 like everyone else) but your day trading expenses will go on Schedule C (unlike others classified as investors.)

It's too late to make a Mark to Market election for 2014 (and even for 2015.) The last day to make the election for 2015 was on April 15, 2015. Consequently, the earliest year you can make it for is next year - 2016.

The Fairmark Press site has an explanation of this:

·         http://www.fairmark.com/traders/mtmelec1.htm and

·         http://www.fairmark.com/traders/mtmelec2.htm

So does any of this $50,000 that I can't deduct in 2014 carry over to future years?

As noted, the $50,000 isn't deductible this year.  As a day trader without a Mark to Market election your losses are limited to $3,000 this year.  The balance is carried over as a capital loss, not a business loss.

[Mark743]

Thanks; I appreciate your help, but am still confused. What is mark to market election? I wasn't even aware of that. All I asked is how, as a day trader, I am supposed to enter my taxes into TurboTax. It's confusing because there are two different parts of my return, which TurboTax doesn't seem to connect: the personal side, where my trading wins/losses are recorded, and the business side, where my expenses are recorded. Please advise as to the technical nuts and bolts of using TurboTax when reporting income as a day trader. As I said in my initial note, I am used to simply answering the questions and being prompted to the right result by TurboTax. However, I do not have confidence that that will happen now that I am a day trader. Thanks.

[bwa]

With Mark to Market, a Trader treats securities gains and losses as ordinary gains and losses (except for any separate investment securities they may have.)  In effect, your gains are taxed as ordinary gains and your losses are allowed in full in the year they are incurred.  It's complicated to change to Mark to Market as you must also change your accounting method. See the IRS description here:  <a href="http://www.irs.gov/taxtopics/tc429.html" rel="nofollow" target="_blank">http://www.irs.gov/taxtopics/tc429.html</a> I would never recommend someone doing it without professional help.

For gains and losses in your situation, you would report your stock gains and losses as if you were not a day trader.  In effect, you would enter them the same as anyone else.  You would also need to create a separate schedule C (business) where you would report no income, but would deduct margin interest and any other direct costs you may occur.  Unlike an investor, these would be business expenses, not itemized deductions.

As you're moving into a complex field professional help, at least for the first year, might be in order.

[shunchang]

I have a couple of questions as well.  I have started day trading, but didn't elect M2M since I didn't know if day trading will work for me or not.  My questions as follow:
1.  without M2M election, can I still report gains and losses on schedule C?
2.  Without forming a sole proprietor, S Corp, LLC and etc, (I do trade over 50 tickets and/or $500k equivalent daily) can I still consider and report tax as professional day trader status and treat losses and investment expenses on schedule C?
3.  As an individual (with extensive daily trading tickets/volume daily), will I still need to consider my 2015 losses with $3000 limitation on Schedule D?
4.  From #3, if reporting losses on schedule D, can I expense day trading equipment, subscriptions, educational books/DVDs etc, and software?
5.  I have  Home & Business TurboTax.  The schedule C is under business section.  I also always use walk me through feature provided.

Thanks
Shun

[bwa]

Shun - look at the answer t the original post above.  It answers most of your questions.

[shunchang]

bwa, well, your answers not really answering to my questions above.  Simply put, can I expense subscriptions, equipment and etc on Schedule C even if I don't elect M2M and I also don't have a business entity (sole proprietor, S Corp and etc...)?

[k-man]

i have a similar question.. i am a day trader and have not selected mark to market.  this means my gains go on schedule D and expenses schedule C.  when i do it this way i do not seem to get credit for my expenses (as i have zero schedule C gains).  how can i fix this?

[bwa]

I'm not sure what you mean by no credit for your expenses.  Look at Page 1 of your form 1040.  Is there a loss from Schedule C shown there?

[k-man]

i'm actually not sure how to preview the form before everything is complete, so i can't tell.  i'm just going by turbotax giving me this message after entering my home office expenses:

It turns out your home office expenses aren't deductible
(this is because it doesn't see any schedule C income and doesn't know to look at schedule D)

Your home office deduction carryover to 2017 is $4,010.

Your home office deduction (for 2016) is $0.

[bwa]

That's probably because a home office deduction is limited to net profit from the business, whether it's from day trading or any other business.  If your securities gains and schedule c are both a loss, you would have no deduction for a home office.